GP Profile: MCP steps up DACH and international focus ahead of next fundraise

MCP raised its first fund in 2007, with backing from Italian and Chinese cornerstone investors. The GP has offices in Milan, Luxembourg and Shanghai, and changed its name from Mandarin Capital Partners earlier this year with the aim of better reflecting its current strategy.

“In Fund II, we realised our name did not fully reflect our strategy,” Gehrt said. “The companies that want to expand to China also want to expand to other markets, and we felt that we were sending the wrong signal to our LPs as if we were called ‘Mandarin’ but our companies were also expanding elsewhere.”

“We also analysed our returns and value creation and realised the majority of it came not from expansion to China, but via buy-and-build and improvement of margins and sales,” Gehrt said. The choice of ‘mindful’ to replace the emphasis on the connection to China came from the GP’s careful investing strategy, according to Gehrt. “We have never had an investment below 1.2x, so we are ‘mindful’, meaning we invest carefully and mindfully, and also ESG is a major topic for us – we take care of our portfolio companies.”

Gehrt cites Italy-based ItalCer as an example of MCP’s ESG approach. The Italy-based ceramic products producer recycles 99% of its raw materials and was named as one of the top 100 sustainable companies in Italy by Forbes, Gehrt said.

“We have achieved all our ESG goals at ItalCer and ESG will be extremely important when we aim for an IPO next year,” Gehrt said. “The company has developed tremendously, from EUR 40m sales in 2017 to almost EUR 400m in 2022.” The GP first backed ItalCer (known at the time as La Fabbrica) in 2017 via a EUR 36m MBI, investing via its 2013-vintage, EUR 195m second fund, according to Unquote Data.

International focus
MCP generally deploys equity tickets of EUR 10-20m, focusing on companies with EVs of EUR 20m-70m and EBITDA of EUR 3m-10m. “The opportunities that we look at are generally primary, with companies wanting to grow internationally,” Gehrt said. “We are also known for doing intense buy-and-build, so advisers and business owners seeing potential here would approach us. But we also look at smaller auctions, particularly in Germany.”

The sponsor plans to up its geographical allocation to the DACH region for its next fund; this allocation stood at 10% for Fund III, Gehrt said. “We plan to fundraise a bigger fund with MCP IV so we can invest a higher amount in DACH – we are expecting to do at least two deals in DACH with MCP IV,” she told Unquote. “We are the only midcap fund of EUR 250m in size that can help companies in our core size bracket to grow internationally - this is our clear USP.”

MCP expects its growing international focus to be reflected in the LP base of its next vehicle. “When we raise our next fund, we will push a bit more for international investors – we already have a high share of international LPs versus other Italian funds, and we already have US and German LPs, but we want to go further,” Gehrt told Unquote.

Approaching the market
The GP held a final close for MCP III in January 2022 on EUR 230m, Gehrt told Unquote. “We are planning to make one more deal from Fund III, which will be a cash-generative business in Italy,” she said. “We have also reserved a lot of buy-and-build capital to make add-ons for our companies, i.a. German for Italian.”

MCP is assessing how to approach the current macroeconomic situation in its current deal-making. “We’re not seeing a slower pipeline at the moment – the problem is valuations,” Gehrt said. “There are also big supply chain problems, and the question is how fast this will be solved and what the impact is on the business plan. If we have a deal on the table, it can hard to judge if the business plan is realistic, and there is a risk of overpaying. At the same time, a lot of entrepreneurs are seeing trouble coming and might want to sell now. So we are dealing with both positive and negative indicators.”

Sector-wise, the GP is continuing to take the same approach. “We have industrial, medtech, consumer, and some services companies, the majority of which can expand internationally,” Gehrt said. “In future, we will focus on the same pattern, targeting midcap cashflow-generative and profitable companies with a clear USP in an international environment."

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